The Indian stock market is undergoing some turbulence. Its benchmark index fell 1.2% on Wednesday. The drop was steeper in the prices of mid- and small-cap stocks, whose indices went down by 4% and 5%, respectively.
These losses come amid stress tests being conducted by mutual funds on a directive from the market regulator to assess how well they are placed to meet redemption demand should an exit rush ensue. This regulatory action by the Securities and Exchange Board of India (Sebi) was precautionary, as the sharp run-up in mid- and small-cap stocks that precipitated it had created concerns of a bubble. So, a market correction isn’t a surprise.
Sebi chairperson Madhabi Puri Buch had flagged exactly that risk earlier this week, pointing out signs of manipulation in small-stock listings. This may have served as a trigger for the sell-off. Otherwise, though, India Inc has been doing well.
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